Society of Actuaries Pledges Faster Mortality Scale Updates

More than a decade passed between the two most recent mortality table updates from the Society of Actuaries, but retirement plan fiduciaries should expect the next updated mortality improvement scales long before 2024.

In a recent interview with PLANADVISER, Dale Hall, managing
director of research for the Society of Actuaries (SOA), said one of the
Society’s goals is to significantly increase the frequency of its mortality data updates. He said the Society’s Retirement Plan Experience Committee, which
drives the massive research effort underlying the periodic mortality table
updates, has created a goal to update its mortality improvement scales at least every three years.

“This came out of the fact that we’ve identified a pretty
sizable list of things in our most recent report that will further drive
mortality improvements over the coming years,” Hall noted. “It’s not news to
say there are really striking shifts in mortality trends occurring in the
United States. We feel it is important to bring faster and up-to-date
recognition of where we are on mortality.”

Retirement plan sponsors may flinch when they hear the
Society wants to introduce new mortality updates more often, Hall admitted. Good
news of added longevity aside, sponsors of defined benefit (DB) plans rely on
the Society’s mortality benchmarks to assess their pension liabilities and liquidity needs.
Many worry about the revised
numbers, which will likely cause increased liability and lowered funded
status for the typical U.S. pension plan. Hall says the SOA itself predicts
between 4% and 8% liability growth for a typical pension plan upon adoption of
the new tables.

It’s not just the SOA urging plan sponsors to consider the
impact of increasing longevity on pension plan funded status. A recent report
from rating agency Moody’s found U.S. companies will have to divert
$110 billion in the next seven years to fund additional pension liabilities
arising from increased life expectancy. Using data from mortality tables
published by the SOA, Moody’s calculated significant increases in the amount of
cash firms would have to contribute to their pension plans in order to match
growing liabilities. Moody’s suggests this environment will push more sponsors
and employers to consider pension risk transfers and other means of paying down
benefit obligations before the new tables actually take effect.

Moody’s
even applied the 4% to 8% increase in the funding obligations for 10 of the
biggest listed companies in the United States. At the top of the list sits
IBM’s funding obligations for its pension plans, estimated at $99.7 billion in
2013. Moody’s calculations showed this could increase to as much as $113.6
billion at the top end of the SOA’s new assumptions.

Hall was quick to point out that more frequent mortality updates
should actually prevent funding shocks for plan sponsors and fiduciaries,
rather than create more. More frequent updates may mean more frequent
mortality-driven increases in pension benefit liabilities, he admitted, but
presumably the increases would be much smaller and regularly timed, and therefore
much more manageable.

The SOA says the new mortality figures come from a
peer-reviewed study of real retirement plan mortality experiences of
participants in U.S. defined benefit plans—representing 10 million life years
and over 220,000 deaths. In short, both men and women show approximately two
years’ additional lifespan over SOA’s earlier tables. This will impact
different plans more and less significantly, Hall said, based on their demographic
profile and design.

“If you have a plan that is closed and there are not very
many young participants, that might increase the impact of the new tables to some extent,” he said. “I’m sure you could come
up with a lot of combinations that would be higher or lower, but for a typical
plan, we’ll see a 4% to 8% liability increase.”

Of course, significantly accelerating such a substantial
research effort will not be easy. Just the rollout process of the most recent
tables started back in February 2014 with the release of an exposure
draft, Hall noted. This was followed by a comment and review period that
ran from February through the end of May, leading to additional tweaks and
adjustments and peer review—and that was just the rollout of the finished
tables. Hall said the initial research phases started as far back as 2009, when
the Plan Experience Committee began collecting data from many different sources
across the retirement plan and health care communities.

“From the beginning we were walking through independent
reviews and audits, and after that process we had to get approval from the
board of directors,” Hall added. “It’s an extensive and scientific process that
leads up to the conclusion that, yes, these are the accurate tables. It will
not be easy to accelerate the process, but we feel it is important to put this
information out so that practicing actuaries can work with plan sponsors and
auditors to make truly informed decisions in managing their pension
obligations.”

Full
versions of the 2014 Mortality Tables (RP-2014) and 2014 Mortality
Improvement Scale (MP-2014) are available here.